In-class quiz-Ch.13-with solutions

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University of Manitoba *

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3110

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Management

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Apr 3, 2024

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Chapter 13 1. If an enterprise intends to refinance a short-term obligation on a long-term basis, which of the following conditions must it meet in order to exclude that obligation from current liabilities? a. The enterprise must demonstrate that a negative effect on working capital will result if it is not reclassified.  b. The obligation is not a part of the enterprise’s normal operations.  c. The interest rate on the long-term obligation is not above the prime rate.  d. The refinancing must be solely at the company’s discretion under an existing agreement.   2. How is the increase in the carrying value of an asset retirement obligation recorded? a. as an operating expense  b. as a borrowing cost under ASPE and as an operating expense under IFRS  c. as a borrowing cost under IFRS and as an operating expense under ASPE   d. as a borrowing cost  3. Forestry Inc., a private company using ASPE, has purchased the timber-cutting rights to a forest in British Columbia. Although not explicitly stated in the contract, it is expected that the company will replant the forest once the existing trees are logged; they have always done this in the past. The cost of replanting the forest is estimated to be $2,000,000. The present value of this is estimated to be $1,250,000. What should be recorded on Forestry’s books as an asset retirement obligation? a. $1,000,000  b. Nothing  c. $2,000,000  d. $1,250,000  4. Anderson Petrol, a public company, is involved in a lawsuit over the removal of underground gasoline storage tanks at the former site of one of its filling stations. Anderson’s lawyers believe it is probable that the outcome of the suit will be unfavourable, but can only estimate the loss within the range of $4 million to $8 million. There is a 50% chance of either amount being ultimately correct. How should Anderson record this environmental liability a. As a loss and liability of $4 million.  b. As a loss and liability of $8 million. c. No recording is required.  d. As a loss and liability of $6 million.   5. Platinum Corp. uses the expense approach to account for warranties. They sell a used car for $ 30,000 on Oct 25, 2020, with a one-year warranty covering parts and labour. Warranty expense is estimated at 2% of the selling price, and the appropriate adjusting entry is recorded at Dec 31, 2020. On March 12, 2021, the car is returned for warranty repairs. This cost Platinum $ 200 in parts and $ 120 in labour. When recording the March 12, 2021 transaction, Platinum would debit Warranty Expense with A. Zero B. $320 C. $200
D. $600 6. Ahrens Automotive sells one-, two-, and three-year automobile service contracts for cash. Cash receipts from contracts are credited to unearned revenue. At December 31, 2019, this account has a $720,000 balance before the year-end adjustment. As at this date, Ahrens has $160,000 in contracts expiring during 2020; $250,000 expiring during 2021; and $115,000 expiring in 2022. Assuming contract costs are charged as incurred, how much unearned revenue should Ahrens record on the December 31, 2019 statements? a) $195,000 b) $355,000 c) $310,000 d) $525,000 unearned revenue should reflect only the unexpired warranty and total of unexpired warranty is 160,000 + 250,000 + 115,000 = 525,000
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